Last week's free fall in the Dow Jones Industrial Average may have been enough to disillusion even the most ardent bull market believers, but there was a silver lining for investors in some Orange County companies.
The blue-chip average plunged 158 points during the week, including a record one-day decline of 91 points on Tuesday. In percentage terms, the Dow shed 6% for the week.
Despite the carnage, many Orange County stocks fared comparatively well. The stocks of 100 county companies tracked by The Times declined only 4% for the week, and 18 of the 100 actually posted gains.
The resiliency of the regional securities can be attributed in part to the character of Orange County companies. Most are young and relatively small, contrasted with blue-chip behemoths such as General Motors, Xerox, McDonald's and IBM. And most Orange County stocks don't receive much attention from the institutional and foreign investors who have accounted for much of the trading in larger, blue-chip corporations.
"With IBM, you can put a lot of money into one company. You place the money in the small ones, and you'd own the whole company," said Jeff Kilpatrick, president of Newport Securities in Costa Mesa.
Larger Issues Hit Hard
Because many institutions and foreign investors pulled funds out of the stock market this week, the stocks of the larger companies traded on the New York Stock Exchange suffered proportionally larger declines than secondaary issues.
Orange County stocks are typically traded on the American Stock Exchange and over-the-counter market. For the past several months, secondary stocks haven't fallen as fast or risen as rapidly as blue-chip securities. Throughout much of the bull market of the last five years, the largest percentage increases have been registered by major-market stocks.
Kilpatrick and other market observers noted that in recent weeks, however, an increasing number of smaller companies, including many Orange County issues, have appreciated in value even when more widely followed Big Board stocks have declined.
Kilpatrick has charted five stocks that have posted significant increases at times during the past three weeks, a period during which the Dow average lost 42 points. Even during last week's market debacle, the five stocks declined by an average of only 2.9%.
Listed below are the five stocks, Friday's closing price and their change for the three-week period:
-Microsemi, $10.625, up $1.75.
-Micro D, $12.50, up 37.5 cents.
-Emulex, $7.625, up 50 cents.
-Silicon Systems, $14.625, up $2.50.
-Bridgford Foods, $15.75, down 75 cents.
Richard Stasand, a research analyst at Diehl & Co., a Newport Beach brokerage firm, said he believes that smaller stocks, including many Orange County issues, will continue to show strength even if the blue-chip securities fail to recoup their recent losses.
The reason, he said, is a possible change of heart on the part of institutional and foreign traders.
"They aren't going to find value in the typical big-capitalization issues," Stasand said. "Even with these declines, a lot of (blue-chip) stocks are still overvalued."
As they grow increasingly wary of overvalued New York Exchange stocks, Stasand said, many institutional investors will begin to focus on the relative bargains that still exist among secondary stocks.
Smaller Companies Eyed
The institutions already are starting to look at smaller companies in familiar industries.
"You'll see analysts looking maybe at Bridgford Foods, not General Foods," Kilpatrick said.
Although many blue-chip issues have tripled or quadrupled in value over the last several years, Kilpattrick said; "some of these secondary stocks are near where they were two or three years ago."
Analysts aren't bullish enough to speculate that Orange County stocks will be able to swim upstream during major-market declines as dramatic as last week's, but they said the losses suffered by the secondary issues will continue to be less severe.
"It will take some indication of strength to get buyers in again. It's so easy to put off a buy decision when you see so many stocks collapsing," said Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley.
Last week, institutions bailed out of the market en masse, but that probably won't continue.
"They've got billions to invest, and they're not going to keep it all out of the stock market," Kilpatrick said. "They'll just be putting it in different places."
And Orange County may be one of the places they pick.